Recent Yuan Declines ‘Within Normal Range,’ China’s Lou Says

The yuan has risen 36 percent against the dollar in Shanghai since China scrapped a dollar peg in July 2005, the best performance among 24 emerging-market currencies. Photographer: Jerome Favre/Bloomberg

Feb. 23 (Bloomberg) -- Recent weakness in China’s currency
is within the normal range and doesn’t signal a change in
economic fundamentals, according to Finance Minister Lou Jiwei.

The offshore yuan fell 1 percent to 6.0933 per dollar in
the five days through Feb. 21, a decline unseen since September
2011. A Chinese manufacturing index fell to the lowest level in
seven months, according to a preliminary purchasing managers’
index released on Feb. 20. Economists predict gross domestic
product will climb this year at the slowest pace since 1990.

“There will be ups and downs” and recent moves are
“within normal range,” Lou told Bloomberg News in Sydney,
where he is attending a meeting of Group of 20 finance ministers
and central bankers. “You can’t say that the yuan is starting
to depreciate just because of a small volatility.”

Asian currencies had their worst weekly loss in six months
as signs of a deeper economic slowdown in China and the Federal
Reserve’s support for tapering bond purchases weighed on
emerging market currencies from the yuan to South Korea’s won
and Thailand’s baht.

The central banks of Korea and Australia today extended
efforts in the Asia-Pacific region to promote bilateral trade
and settlement in local currencies even in times of financial
stress by signing a foreign-exchange swap agreement. The deal is
for up to 5 trillion won ($4.7 billion) or A$5 billion ($4.5
billion) and will last for three years initially, the central
banks said.

Swap Deals

The Bank of Korea signed a similar deal with the Central
Bank of United Arab Emirates in October while Japan expanded
similar agreements with Indonesia and India over the past few
months.

U.S. Treasury Secretary Jacob J. Lew has told his G-20
colleagues that volatility in emerging markets is among global
economic concerns and China’s “reform efforts” and financial
risks are under scrutiny.

The onshore yuan fell 0.41 percent last week to close at
6.0919 in Shanghai, according to China Foreign Exchange Trade
System prices. The People’s Bank of China cut the daily
reference rate on Feb. 21 to a two-month low of 6.1176.

The PBOC said in the past week that it plans to expand the
yuan’s trading band in an “orderly” manner in 2014, while
broadening cross-border usage of the currency.

Trading Band

The onshore spot rate can currently diverge a maximum 1
percent from the daily fixing, a limit that was expanded in
April 2012 from 0.5 percent, and before that from 0.3 percent in
May 2007.

Global yuan trading volume surged to $120 billion a day on
average in April 2013, from $34 billion in 2010, according to a
Bank for International Settlements survey. Daily average
turnover in offshore yuan spot, forwards and options could reach
$20 billion in 2014, based on a December estimate by Deutsche
Bank AG, the world’s biggest currency trader.

China’s central bank governor Zhou Xiaochuan, also in
Sydney for the G-20 meeting, has expressed confidence in the
nation’s growth prospects. “There’s no big problem” for China
to maintain a steady and healthy economic expansion, Zhou told
Bloomberg News on Feb. 21.